Family Researcher | Three “Pre-existing Temperatures” Give Clear Signals

Xiao Pan and Old Li

Both fail to see the situation clearly

New regulations on entry and exit will take effect from September 15th.

With “Banned from Investing in US Stocks, Rare Global Power with Only One Correct Path“, the movement of people will also be strictly scrutinized.

For a strong economy, restrictions on talent and capital flow are a strong signal.

According to the transaction cost theory of new institutional economics, this means an increase in economic transaction costs.

If transaction costs are broken down into three dimensions: property rights stability, punitive taxation, and freedom of factor mobility, then this is a very strong and clear signal.

The Lack of “Patient Capital”

In the 1990s, official media consistently stated that the property rights system is the cornerstone of a modern enterprise system.

According to Marx’s theory, ownership is property rights, which is the fundamental indicator determining the nature of power.

Therefore, the stability of property rights determines the capital formation rate and investment duration. Once property rights expectations waver, the payback period for factory equipment shifts from 10 years to 3 years, leading to the collapse of total factor productivity first, followed by GDP.

Why is there a constant call for “patient capital” now? It’s because people no longer dare to plan for the long term.

Historically, after the Longqing Embargo was lifted in the Ming Dynasty, one-third of the world’s silver flowed into the Ming Dynasty.

However, due to a lack of investment opportunities, the massive amount of silver did not turn into productive capital such as factories and machinery, but instead became land deeds and residential properties. Merchants earned money and bought land, and officials received silver and built houses.

When a non-productive asset becomes the main carrier of social wealth, it transforms from a “water reservoir” into a “source of risk.”

Real estate over the past two to three decades has played a strikingly similar role. As of the end of 2024, the market value of real estate has depreciated by approximately 120 trillion yuan, equivalent to nearly 80% of the total GDP in 2023.

For ordinary people, their biggest investment in life was buying a house in the city, only to find that in less than two years, not only did housing prices stop rising, but they might also face unfinished construction, loan defaults, and insolvency.

On one hand, investments yield no returns, or even becoming a boss becomes a high-risk profession. “Female Boss Owed Engineering Fees for 7 Years Receives Late-Night Call from Court: “You’re pretty, President Feng likes you.”“

On the other hand, asset values shrink. The house you buy today might fall 30% tomorrow; the money you deposit today might be swept away by a wealth management product default tomorrow; the enterprise you founded today might become a negative asset overnight due to a policy change. When wealth is no longer predictable, it ceases to be wealth and becomes a gamble.

Not long ago, I saw a video posted by a Bilibili UP主 exploring an unfinished Evergrande building in Kaili, Guizhou. The homebuyers were cooking fires in the ruins, and I thought they were having a picnic. They said, “Our home is here.”

The owners gathered to eat. Some bought houses for their children’s education, and their children went to college without ever living in the house; some bought it as a wedding house, and the wedding was repeatedly postponed; some bought it for their elderly parents, but worried that the parents would not live to see the day they could move in; some paid for their own mistakes, their families were torn apart, and they lived alone in the unfinished house.

Douglass North said that the premise of long-term growth is stable and predictable property rights protection and contract enforcement. Once property rights expectations are shaken, long-term investment becomes arbitrage, and innovation becomes conservative.

Arbitrary sealing and seizure, and decreased asset security are all classified as “weakening of property rights.”

If this is the case, which capital will have “patience”?

Taxation with Emotional “Punishment”

In the past two years, people liked to use non-tax revenue, i.e., the proportion of fines in local fiscal revenue, to assess the business environment of a region.

In fiscal sociology, if tax rates become a moral punishment targeting a certain group, such as wealth-hating progressiveness or a campaign to collect back taxes from internet celebrities, it indicates that the fiscal logic has shifted from exchange to extraction.

Zhang Weiying often says that punitive taxation means the government abandons neutrality and uses the tax system as a weapon for redistribution, which stifles entrepreneurial spirit in the long run.

Especially when the economy declines, leading to a shrinking formal tax base and rigid expenditures, the government will instinctively turn to “informal extraction.”

This extraction is characterized by strong emotions and punishment. It is not collected according to rules, but rather targets “who has money, who is easy to bully, and who can be squeezed for oil.”

For example, in 2024, national tax revenue decreased by 3.4% year-on-year, while non-tax revenue surged by 25.4% year-on-year, accounting for 20.3% of general public budget revenue, a historical high.

Among them, fines and confiscated income increased by 14.8%, with an increase of as high as 25.2% in the first half of the year.

Some localities even have fines and confiscated income accounting for nearly half of non-tax revenue!

To solve this problem, “deep-sea fishing” and “cross-provincial pursuit of entrepreneurs” are used, creating cases as needed.

An enforcement officer calculated in a recording: “We still need 29 million yuan for this year’s target.” “With Too Much Non-Tax Revenue, Which Provinces Will Be Inspected?“

What businesses fear most is not paying taxes, but not knowing who will show up at their door tomorrow or which account will be frozen.

Punitive taxation is equivalent to taxing success. When businesses live like startled birds in uncertainty, the only response for high-income groups and high-profit industries is to proactively shrink their scale and lower their book values.

Of course, if taxes are increased on young people to raise retirement benefits, and increased on businesses to raise public sector benefits, it is a disguised form of “punitive taxation.” What signal does this send to the young people and entrepreneurs who create wealth? The market will respond quickly.

When People and Money “Flow” No Longer Freely

In “Power and Prosperity,” it is stated that the more freely mobile factors (capital, technology, talent) are, the more motivated “bandit-like” governments are to protect property rights.

Conversely, when the government starts locking down capital, restricting outbound travel, and limiting technology outflow, it is tantamount to admitting the bankruptcy of the “long-term tax base logic” and shifting to short-term plunder.

In fact, property rights are not just about who owns what, but rather the right to choose actions that are protected by social coercion.

Zhou Qiren has repeatedly elaborated on this point domestically: Redrawing property rights boundaries and restricting transfer rights are leading indicators of declining resource allocation efficiency. “Foreign Capital Retreats at 50% Discount; Not Allowing SOHO to Sell Back Then Actually Helped Blackstone“

Whether factors can flow freely determines allocation efficiency. Capital and talent moving to areas of higher efficiency is a market check. Once the cost of voting with one’s feet becomes too high, misallocations become solidified, zombie enterprises don’t die, and good enterprises flee.

The current construction of a unified national market focuses on fair market access, which is certainly important. However, in reality, if exit is not free, entry is meaningless.

The logic is simple: the right to exit is a key lever for institutional correction.

The current problem is that the difficulty for domestic technical personnel and entrepreneurs to exit has become unimaginably high.

And this lockdown is already reflected in the most reliable primary school textbooks.

The children’s picture book “A Brief History of China” published in 2021 explains “closed-door policy” as: “A closed-door policy is a defensive strategy. Simply put, it means closing the gates, restricting foreign personnel from entering the country, and also restricting Chinese citizens from interacting with foreigners, thereby reducing the extent to which the country is influenced by the outside world.”

Well, the consequence is that from 2021 to 2025, the net inflow of talent to first-tier cities decreased from 5.4% to 3.7%, and the inflow proportion decreased from 19% to 15%.

The Ming Dynasty’s maritime ban did not stop the Wokou pirates, but it blocked the future.

“Stones” from Other Mountains

There is nothing new under the sun.

Similar stories have occurred in Latin America in the 1970s and emerging countries in the 2010s.

• In terms of property rights, the former saw state-owned enterprise expansion, foreign investment restrictions, and increased regulation; the latter saw state-owned buybacks, foreign exchange controls, and judicial volatility.
• In terms of taxation and finance, the former had deficit finance + financial repression + hidden inflation tax; the latter had quasi-fiscal deficit + state-owned enterprise losses + capital control fees.
• In terms of free flow of factors, the former had capital flight masked by foreign debt inflows; the latter had regulation as a signal, leading to accelerated capital flight, and a decline in both talent and foreign direct investment.

Economic health is not measured by temporary output, but by whether repeated games can continue.

If businesses dare not invest long-term, people dare not save assets, and factors dare not stay, once these three signals combine and point downwards, then one thing is inevitable.

A story that people worry about daily, but fundamentally will not happen.

Because our country has great economic leeway, strong resilience, and especially correct and strong leadership.

If we look at the data development stages, for the former, it took 5-10 years, with the sequence being inflation, deficit, foreign debt, capital flight.

For the latter, it took 1-5 years, with the sequence being exchange rate, inflation, capital flight, and shrinking foreign direct investment.

Here, except for Xiao Pan running away, “Foreign Capital is Rushing Towards 2009, and the State is Lowering its Stance to Attract Investment…“, the exchange rate and inflation indicators are the opposite.

Move forward boldly.

Family Biography Editorial Department

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